BCB Bancorp, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; financial statements are unaudited. BCB is a community bank holding company operating primarily through BCB Community Bank in New Jersey.
Key financial metrics
Amounts are in millions unless noted. Comparisons are with the corresponding 2014 period or December 31, 2014, as applicable.
| Metric | Q2 / June 30, 2015 | Comparable period |
|---|---|---|
| Total interest income | $17.0 | $14.8 in Q2 2014 |
| Net interest income | $13.7; net interest margin 3.88% | $12.2; margin 4.00% in Q2 2014 |
| Provision for loan losses | $1.1 | $0.45 in Q2 2014 |
| Net income | $1.9; diluted EPS $0.20 | $2.6; diluted EPS $0.29 in Q2 2014 |
| Six-month net income | $3.7; diluted EPS $0.39 | $4.9; diluted EPS $0.53 in first half 2014 |
| Assets | $1,498.1 | $1,301.9 at Dec. 31, 2014 |
| Net loans | $1,388.8 | $1,207.9 at Dec. 31, 2014 |
| Deposits | $1,178.3 | $1,028.6 at Dec. 31, 2014 |
| Cash and cash equivalents | $45.9 | $32.1 at Dec. 31, 2014 |
| Loans past due over 90 days/nonaccrual | $19.4 nonaccrual loans; $17.7 allowance | $19.6 nonaccrual loans at Dec. 31, 2014 |
| Borrowings | $202.0 short- and long-term debt, plus $4.1 subordinated debentures | $159.0 short- and long-term debt at Dec. 31, 2014 |
| Stockholders’ equity | $106.0 | $102.3 at Dec. 31, 2014 |
For the first half, operating cash flow was $5.2 million, investing cash outflow was $184.3 million, and financing cash inflow was $192.8 million. Cash increased by $13.8 million to $45.9 million. The Bank reported June 30 regulatory capital ratios of 7.60% tangible capital to tangible assets, 8.78% Tier 1 capital to adjusted assets, 10.03% total risk-based capital, and 8.78% Common Equity Tier 1.
Changes versus prior periods
- Q2 net income fell $0.7 million year over year; first-half net income fell $1.1 million. Higher noninterest expense and loan-loss provisions outweighed growth in net interest income.
- Net interest income rose 11.9% in Q2 and 8.1% for the first half, supported by asset and loan growth. Net interest margin declined from 4.00% to 3.88% in Q2 and from 4.03% to 3.87% for the first half, as asset yields softened and funding costs rose.
- Loans grew 15.0% from year-end, led principally by commercial and multifamily real estate, construction, and commercial participation loans. Deposits rose 14.6%, including growth in certificates of deposit; the company also used listing-service and brokered CDs to fund lending.
- Noninterest expense increased 17.9% in Q2 and 17.3% for the first half. Management attributed much of the increase to staffing and costs associated with four new branches opened over the preceding 15 months.
- Prior-year noninterest income included a $1.2 million gain on available-for-sale securities; there was no comparable securities-sale gain in 2015. Gains on sales of originated loans increased to $1.2 million in Q2 and $1.9 million for the first half.
Outlook, risks, and unusual items
- Management said it intends to grow assets at a measured pace consistent with capital and business opportunities, maintain liquidity for lending, and anticipated opening additional branches in 2015. No numerical earnings or growth guidance was provided.
- Management cited competitive pressure on loan pricing and deposit costs, interest-rate exposure, credit risk, real-estate values, economic conditions, deposit flows, funding access, and regulatory changes as risks. The loan portfolio is concentrated in commercial and multifamily real estate; $34.5 million was classified substandard and $18.6 million special mention at quarter-end.
- The allowance for loan losses was 1.26% of gross loans. Management considered it adequate but noted estimates may differ from actual losses and regulators may require additional provisions. Net charge-offs were $0.29 million for the first half, versus $0.84 million in first-half 2014.
- Interest-rate modeling showed an estimated 10.38% decrease in net portfolio value under a 100-basis-point rate increase; management cautioned that the model depends on assumptions and is not a precise forecast of net interest income.
- The company began a private placement of up to $25 million of Series C 6% noncumulative perpetual preferred stock. It had received $2.3 million in subscriptions by June 30; the shares are not callable before December 31, 2017.
- A proposed $1.95 million settlement of a shareholder class action was awaiting a fairness hearing scheduled for September 21, 2015. The company separately settled claims against one D&O insurer for $1.75 million; claims against another insurer remained pending. The filing does not clearly state the net financial exposure after insurance recoveries.
- The filing reports $19.4 million of nonaccrual loans in the loan note and MD&A, but the risk-factor discussion cites $18.1 million. The filing text does not explain this difference.
Important facts for investors to verify
- Whether loan growth, particularly in commercial and multifamily real estate, can be sustained without deterioration in credit quality or further reserve increases.
- How margin performance responds to competition, changes in funding mix, and interest-rate movements.
- The quality and retention cost of deposit growth, including listing-service and brokered certificates, and the company’s available borrowing capacity.
- The settlement’s final approval, payment timing, insurer recoveries, and resulting net exposure; also reconcile the differing nonaccrual-loan figures in the filing.
- Progress and costs of planned branch expansion, the Series C preferred offering, and the effect of preferred dividends on earnings available to common shareholders.